The number of new applications for unemployment benefits rose by 13,000 to 196,000 last week, the Labor Department reported Thursday.
Rising jobless claims, a proxy for layoffs, are a sign the unusually strong labor market might be starting to react to the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.
While the jobless numbers ticked up this week, over the past month or so, they have actually trended lower. In fact, last week, they were the lowest since April of last year — a sign that the labor market has remained remarkably resilient.
The weekly jobless claims number has been closely watched over the past year, given the Fed has been hiking so aggressively. The report comes a week after the Fed voted to raise rates by a quarter of a percentage point, its most modest hike since last March. There are fears that the rate hikes will send the economy into a recession and the unemployment rate will rise, but so far, that has not shown signs of happening.
“A week after a monster 517,000 payroll jobs report for January, we would be crying wolf if we said we thought there was a recession signal in the weekly unemployment claims data this week. Recession is not around the corner with layoffs at this low of a level, and the downturn, if it is coming at all, is months away,” said Chris Rupkey, chief economist at FWDBONDS.
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The economy gained 517,000 jobs in January, smashing expectations, in another sign that the labor market is holding up.
Some jobs have been lost, though. For instance, the tech sector, which boomed during the pandemic, has seen waves of layoffs. Some feared those layoffs might have been a harbinger for broader job loss, although the economy has proven stronger than expected.
While the number of new jobless claims has remained low enough to avert fear that the country is already in the throes of a recession, most economists anticipate the U.S. economy will enter a Fed-induced recession at some point in the new year. That is because rate hikes can take a while to filter through the broader economy and create recessionary conditions and job losses.
It is expected that as the rate hikes begin to ripple across the economy, jobless claims will start to tick up, and then monthly jobs reports will begin to turn negative.
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Meanwhile, inflation is beginning to come down with the rate hikes.
The consumer price index, the most familiar gauge for the broader public, shows that overall inflation has declined from above 9% in June to 6.5% in December — well above the Fed’s 2% target but a meaningful decline.
